The Importance of Primary Beneficiaries: Pending Divorce and Passing of a Spouse

The reason you work with an experienced estate planning attorney when organizing your estate is that they see things you don’t. They’ve been down this road many times and are aware of its potential hazards. An experienced attorney steers you around pitfalls and ensures you avoid complications before they ever arise. Their counsel is always indispensable but this is especially true in moments of exceptional disruption like, say, divorce. This article looks at the matter of primary beneficiaries to show just how true this may be.

Getting a Divorce? Time to Revise Your Primary Beneficiaries

Let me tell you a story.

Joanne and Michael (not their real names), like so many these days, had remarried after their first marriages fell apart. Michael had no prior children, but Joanne was a mother of two when the couple first met. This presented no obstacle and for years they were happily married. Nevertheless, their union eventually soured, but they kept it together to spare Joanne’s children from further disruption.

When the youngest child finally moved out, Joanne and Michael decided to divorce. Their split was amicable enough but, of course, each wanted to protect their assets. Joanne designated her children as the primary beneficiaries of her Individual Retirement Account (IRA) in place of Michael and opened a new bank account with a transfer-on-death feature that also named her children. Tragically, Joanne died before the divorce could be finalized, thrusting her attempts to protect her assets into uncertainty.

When a divorce case is filed, the court places a temporary injunction on all marital property to ensure neither party tries to deprive the other of assets to which they are legally entitled. This means that until the dust settles, nothing held in joint ownership can be touched. When Michael learned how Joanne had changed the primary beneficiaries on her IRA and bank account, he sued on the basis that this injunction had been violated.

Initially, the court ruled in favor of Michael, agreeing that Joanne’s actions violated the automatic temporary injunction associated with their divorce. Her children appealed, the case went to the Supreme Court of Oklahoma, and, ultimately, Joanne’s new beneficiary designations were upheld. The state Supreme Court ruled that Joanne’s death dissolved her and Michael’s marriage which, in turn, relieved the injunction placed on their assets. This outcome notwithstanding, Joanne’s children were unable to obtain closure during the litigation and still suffered immense strain—a darkly ironic outcome considering she and Michael had stayed together so many years, precisely to spare them such an experience.

The Moral? Work with an Expert 

I don’t know Joanne’s estate planning attorney, and whether they properly did their job is beside the point. What matters here is seeing just how complex things can get when a minor oversight is made.

A good estate plan accounts for all possible twists and turns and protects against life’s many curve balls—but you can’t have a good estate plan unless you work with a good estate planning attorney. I suspect that this case would have been decided differently if the retirement account had been a 401(k) or 403(b), as these accounts are governed by federal law rather than state law.

Contact The Law Firm of Christopher W. Dumm

To learn more about ensuring your assets are protected, no matter how messy life may get, do not hesitate to reach out to the Law Firm of Christopher W. Dumm either by calling 417-623-2062 or using the contact form on our website.